Having chosen
to finance the First World War by taking on debt instead of raising taxes, the
Second Reich was in bad financial shape by the time the Armistice was
declared. The country’s commercial banks
had been discounting accommodation bills (bills backed only by a general
promise to pay, not a claim on a specific asset or revenue stream) at a
tremendous rate. As Hjalmar Schacht
recalled,
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| August Thyssen. He does look like an elderly Lenin! |
The advances on bills of exchange of which Thyssen [August
Thyssen, a German financier, one of the wealthiest men in the country] was wont
to avail himself did not always conform to Reichsbank commercial bills, but he
made use of them because they were the cheapest. One could not always tell at first sight
whether a bill was destined for payment of a goods transaction and therefore a
genuine commercial bill, or whether it would simply be used as an accommodation
bill to obtain cash (monetary) credit. (Schacht, Confessions of “The Old
Wizard”, op. cit., 134.)
A great deal of
financial chicanery went on. On one
occasion, Thyssen (of whom Schacht remarked he looked like a Lenin in old age) floated a loan to himself of 10 million Reichsmarks. When the head of a major bank refused to
discount the bills on the grounds that they were not “real bills” (commercial
paper) and were secured by the issuer, and he had never in his life accepted such
accommodation paper, Thyssen immediately proposed that the bank issue 10
million Reichsmarks in bills as a loan to him, which he would accept on his
personal credit! Schacht remarked, “I
don’t remember how the matter worked out.
But one thing is certain — the [bank] credited the amount.” (Ibid.)
In other words, Thyssen put pressure on the bank with his financial and
political connections, and forced it to make him an unsound loan on his terms.
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| Albert Ballin, businessman |
By 1917, both
sides in the war were in very bad shape.
It looked as though things might very soon end in a draw. In April, however, everything changed when
the U.S. entered the war. As Schacht
explained,
Conditions in the countries of both groups of belligerents
appeared to be fairly similar. Albert
Ballin had hoped that the war would end in a complete political fiasco which
would give businessmen a chance of enlisting the voice of reason on their
side. That hope might even then have
been realized. That it was not was due
to the intervention of a third, extra-European Power in the progress of the
war. The United States at the beginning threw
in their economic potential and later their armies to Europe, thus deciding the
war in favor of the Entente Powers. (Ibid., 147.)
This meant that
the so-called Armistice was anything but.
The Entente Powers were determined not merely to make Germany and
Austria-Hungary pay legitimate reparations, but to assume the total cost of the
war as well as punitive damages, such as Bismarck had levied on France in 1871
in an effort to destroy France economically forever.
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| Woodrow Wilson, ineffective president. |
This would probably
not have been possible had someone other than Woodrow Wilson led the United
States. For all his rhetoric and
Fourteen Points for Peace, Wilson was ill-equipped to deal with a Great Britain
and, especially, France out for revenge — which, backed by American financial
and military might, they were well able to exact. As Schacht commented,
It is not for me to go into the reasons for the entry of the
United States into the war. It is a
fact, however — as I wrote later in my book The End of Reparations —
that in so doing she assumed a political responsibility with which, at that
time, she was not yet fit to cope. This
is not, in my opinion, an unfair criticism.
Many Americans have condemned America’s political defection after the
war far more harshly than I have done. (Ibid., 147-148.)
For “the United
States” read “the leadership of the United States,” and there is no reason to
think that Schacht was in any way speaking beyond his book. It is hard to imagine that had Theodore
Roosevelt been elected in 1912, he would not have been re-elected in 1916, and
that, as a delegate at Versailles, he would have let anyone walk all over him
the way Wilson did. Germany and
Austria-Hungary would have been treated fairly, Hitler would not have come to
power, and World War II would never have occurred.
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| Theodore "Don't Bully Me" Roosevelt, effective president. |
The social and
economic strains in Germany added to the financial weakness made for a very
unstable situation. Communist,
socialist, and anarchist groups began agitating for revolution, with the lid
only being kept on by widespread public apathy as a stunned population simply
drifted from one bad situation to the next.
As Schacht recalled,
Toward midday on November 9 [1918] I came out of the Hotel
Esplanade with a friend and saw the first lorries drive across the Potsdamer-Platz
filled with heavily armed Red troops. It
was a curious sight. People passed by
the lorries looking depressed and indifferent — they did not even glance at
them. The Red revolutionists shouted,
brandished their rifles and generally threw their weight about. In among them, before and behind, the usual
midday Potsdamer-Platz traffic carried on.
A very curious significant scene, expressive of German’s disrupted
condition — revolution in lorries, apathy in the streets. (Ibid., 137.)
Worse, however,
was to come
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